ECB Says Private Sector Loans Continue Fall as Economy Revives

Lending to companies and households in the euro area fell for a 15th month in July, extending the longest credit contraction on record, even as signs of economic recovery in the region increase.

Loans to the private sector dropped 1.9 percent from a year earlier, the Frankfurt-based European Central Bank said today. That’s the steepest decline on record. Adjusted for loan sales and securitization, lending contracted 1.4 percent in July.

ECB President Mario Draghi said on Aug. 1 that credit will lag the recovery in the real economy. The 17-nation euro area emerged from recession in the second quarter, posting 0.3 percent growth after six quarters of contraction. Economic confidence in the region is forecast to rise in August to the highest level in 17 months, according to a Bloomberg News survey before a report tomorrow.

“When we see a turnaround in investment then we should see credit picking up, particularly in Germany, perhaps by November or December,” said Annamaria Grimaldi, an economist at Intesa Sanpaolo SpA in Milan. “In the case of Italy and Spain, it’s a much more delicate issue and depending on deleveraging the dynamic of credit could be more sluggish.”

Germany’s gross domestic product climbed 0.7 percent in the three months ended June from the prior quarter. Italy’s economy shrank 0.2 percent and Spain contracted 0.1 percent. Both nations have been in recession for two years.

The rate of growth in M3 money supply, which the ECB uses as an indicator for future inflation, slowed to 2.2 percent in July from 2.4 percent in June, according to today’s data. Economists had expected a decline to 2 percent, according to the median of 28 estimates in a Bloomberg News survey.

M3 grew 2.5 percent in past three months from the same period a year earlier. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings.

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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